Weekly forecast – Apr. 28, 2023

Forecast updates

Worries about inflation and recession seem to be influencing markets today – some believe consumers will continue to ration purchases and seek value implying higher prices may be met with reduced demand. IRI scan data seems to support sentiment – velocity slows when prices or promotions decrease. But, one sector with significant inflation is travel, which is due to capacity limitations – presently, demand exceeds supply, driving airfare and hotel prices higher. While milk is plentiful, widespread reports indicate that US and EU processors are dipping into stocks to keep current with demand. Projections indicate that there will be a surge in travel this summer that could exceed pre-pandemic levels – and that could drive foodservice demand. Budget-conscious travelers could look to for smaller trips closer to home, but that still means people on the road – all things that point to more robust foodservice demand this summer. That said, much like last year, Labor Day could abruptly end the season as consumers return to their budget-conscious ways. Still, there is bad news spreading for white-collar workers as layoffs continue, banks are still a wild card and a recession looms toward the end of the year.

Cheese forecast updates:

Reduced barrels and increased the block-barrel spread for the remainder of the year.
Blocks reduced May, but largely maintained the price trends from recent forecasts.
New cheese plants are starting up, but it could take until Q1 2024 before the new capacity is available to markets.
Stronger foodservice and export demand could lift prices later this year.

Butter forecast updates:

Increased the butter forecast. Given the recent declines in stocks, which was unusual, that could stunt the butter build.
While more butterfat is available and outside oil markets have eased, that could still support prices during the fall demand season.
Butter has been supported through the build in the low $2.30s, meaning prices will likely rise into the year’s second half. That lift could be more modest than last year.

NDM forecast updates:

No significant changes – updated for spot markets.
Still expect prices to lift into the second half of the year as milk production growth moderates and more milk moves to cheese vats.

Whey forecast updates:

Reduced lactose, whey, and WPC into 2024 as more capacity comes online.

Milk Market

Most of the trends over the past weeks continue for milk production. Persistent winter conditions slowed the spring flush start-up in parts of the country. That said, most of the United States abruptly turned toward summerlike weather conditions last week. That can be somewhat problematic for production as the cows need more time to transition from one season to the next. Milk is mostly steady in the west and rising in the Midwest and the east, according to the latest USDA reports. At issue, bottled milk sales will begin to wind down as colleges start to let out over the next few weeks, followed by elementary and high schools. That will start to push more milk back to manufacturing – meaning it is still a few weeks before most areas feel production relief.

Cheese Market

Barrels traded more in April than any month back to 2018. Last week ended with 45 barrels changing hands. After dropping to $1.475/lb, the lowest price since 2021, barrel prices rebounded. CME barrels averaged $1.535/lb, up 0.4¢ compared to the previous week. Blocks bottomed at $1.6425/lb before lifting – following barrels up. Spot blocks averaged $1.6705/lb, down 8.65¢. Cheese prices moving in opposition closed the block-barrel spread to 13.55¢ this week. Cheese has been widely available to spot markets, but if the end-of-week trading holds up, a shift may be in the cards, with sell-side pressure subsiding somewhat into May. Reports suggest export interest is starting to pick up – especially from Southeast Asia – that could deprive spot markets of additional cheese. Domestically, most are reporting steady retail sales, but food service is mixed.

US cheese stocks totaled 1.46 billion pounds on March 31, 0.4% less than a year ago. The February to March build was 13.5 million pounds – much higher than last year – but consistent with the five-year average. American cheese stocks totaled 832.2 million pounds – 0.5% more than last year. That was a sizeable MTM increase, with only two increases like this over the last six years. Other types of cheese totaled 605.7 million pounds and 1.4% less than a year ago.

There was a good amount of data from overseas this week. New Zealand March 2023 cheese exports totaled 86.2 million pounds, 0.1% more than in 2022. Exports to China increased by 16.7% compared to last year. Higher exports to Australia drove exports higher – they were 3X higher. Lower volumes throughout SEA offset the inroads into Australia and China. China’s cheese imports totaled 36.4 million pounds, 10.8% more than last year. Year-to-date imports are 6.7% more than last year. Oceania accounted for 78% of the imports. China has been buying more cheese from Italy and the United States since the start of the year.

Butter Market

After sitting for four trading sessions at $2.40/lb, CME spot markets pushed higher on Thursday. That was followed by a pulled back on Friday on uncovered offers. The spot butter price averaged $2.393/lb, up 0.9¢ compared to the previous week. Most reports indicate that butter churning with fresh cream slowed over the last week as the cream was harder to come by and multipliers moved up. Given warmer weather conditions, reports indicate ice cream production is ramping up quickly and drawing cream from churns. Still, western churns are busy, with some cream moving to the Midwest for processing. Some groups are starting to micro fix when the cream is too expensive or unavailable. That means peak stocks could likely be sooner than later – especially given the unusual month-to-month draw down from February to March.

US butter stocks totaled 292.7 million pounds as of March 31. That was 3.48% more than last year but less than February – marking another decline. That was the first MTM decline over the last eight years – marking it unusual and supportive to prices. Data indicate butter stocks are easing early, which could support prices.

Overseas butter news was slightly bearish with more inbound butterfat to the United States to balance markets. New Zealand’s March 2023 butterfat exports totaled 102.7 million pounds – up 2.1% compared to last year. Exports to China fell 22.8% vs. last year. That was more than offset by higher volumes to Mexico, Australia, and the United States. China’s March 2023 butterfat imports totaled 26.1 million pounds – 15% lower than last year. Year-to-date, China’s imports are 19.9% lower than the previous year. That is a reversal from last year when China’s butterfat imports were one of the only products to better 2021 levels.

NDM/SMP

A more robust GDT milk powder performance and lower West Coast milk lifted NDM/SMP price expectations throughout the week as the unexpected firming caused buyers to jump back into markets. Like butter, NDM is plentiful today, but there are signs that milk shifting toward cheese and away from butter/powder over the next few months could leave the market snug later this year. As a result, CME NDM prices averaged $1.1475/lb, up 0.65¢ compared to the previous week. GDT SMP prices lifted 7% to $2,776/MT ($1.259/lb); WMP was up 1% to $3,089/MT ($1.40/lb). Prices may still experience volatility through the spring, but weather and other factors have buyers willing to secure product at current levels.

This was a big week for trade data with New Zealand and China releasing March data. New Zealand’s WMP exports totaled 270.4 million pounds, 8% less than the previous year. Fewer exports to China were offset mainly by exports to Algeria that were 4X those last year. Exports likely dropped on fewer shipments to Bangladesh and Indonesia. New Zealand’s SMP exports totaled 88.7 million pounds – 1.8% less than last year. Exports to China were 4% less than last year. It was a fair performance, but a recognizable slowdown.

Markets are closely watching China’s WMP imports as their absence are causing markets to feel surplus. Unfortunately, China’s WMP imports remain well behind last year’s pace, with 2023 the slowest start since 2012. But, consider China is the second-largest manufacturer of WMP behind New Zealand, and the nation has sufficient milk so that more of it is headed to driers. YTD imports are running 61.8% behind the same period last year. Over the last five years, China imported an average of 630 million pounds in Q1; this year is less than half of that figure, 296.3 million pounds.

China’s SMP imports continue to expand. March 2023 imports were 83.2 million pounds, 64% more than last year. Q1 imports are up 14.1% compared to the previous year, partially offsetting some WMP declines. Imports from the United States increased 119% vs. last year. Imports from many EU27 nations and Australia were also higher – led by Germany at +1330%.

Whey & Lactose Products

CME whey prices slowly increased throughout the week after reaching a new low earlier in the week. CME spot whey prices averaged 34.15¢, down 2.4¢. A higher NDSPR price 46.13¢, up 1.32¢ vs. the previous week, may have helped to lift the spot price – it did cause nearby futures to rise. While APR23 futures project prices above 40 cents, the market expects prices to drop by May. Nearby futures moved up also. Dairy Market News whey prices declined this week. Central prices averaged 40.5¢, down 3.25¢ from the previous week. Western prices averaged 41.25¢, down 0.25¢ from the previous week. Lactose prices were steady at 28¢.

There are reports that China’s latest round of African swine fever (ASF) was worse than the government reported. That may lift whey, permeate, and lactose demand as the nation again works to rebuild its herd. This ASF event was far less than in 2019, but significant enough that makes took notice. China imported 122.7 million pounds of whey in March 2023, 47.4% more than last year. – but still below the 2021 peak. That reflects an improvement, but still below 2021. That said, this is a good Q1 start for imports. Additionally, China’s infant formula imports jumped up 51% compared to last year. This may be related to the post-pandemic trends where access to foreign infant formula was limited.